Overview

America's Federal Reserve held its benchmark interest rate at 5.25%, extending its pause for a second consecutive month after two years of tightening. The Fed said that the “moderation in economic growth appears to be continuing” and that “inflation pressures seem likely to moderate over time”, but added that “some inflation risks remain.”

Inflationary pressure in America eased. The annual rate of consumer-price inflation was 3.8% in August, down from 4.1% in July. Month on month, consumer prices rose by 0.2% in August, having increased by 0.4% in July. Core prices, which exclude the volatile categories of energy and food, increased by 0.2% for the second consecutive month.

The American housing market cooled further. Housing starts dropped by 6% in August compared with July and were 19.8% below their rate in August 2005. Confidence among homebuilders continued to fall. The National Association of Home Builders/Wells Fargo Housing Market Index fell for the eighth consecutive month in September, to its lowest level since 1991.

America's current-account deficit, the broadest measure of trade in goods, services and investment flows, widened to $218.4 billion, or 6.6% of GDP, in the second quarter.

Industrial production in the euro area fell by 0.4% in July compared with the previous month, thanks to weak production in France and Italy. Year-on-year growth in industrial output slowed to 3.2% in July, from 4.4% in June and 5.2% in May.

Spirits were low in Germany. The ZEW economic-sentiment indicator, based on a survey of analysts and institutional investors, fell by 16.6 points in September to -22.2, far below its historical average of 35. The decline is attributed to fears of weakening global demand, slowing private consumption and higher costs.

The annual rate of growth of Britain's broad money supply, M4, rose to 13.7% in the year to August, its fastest pace in almost 16 years. The money supply grew by 0.8% in August after expanding by 1% in July.

In Japan department-store sales in August were 0.9% lower than a year earlier. This was the fifth such monthly drop in a row. Clothing sales fell by 1.7% and sales of household products dropped by 3.2%, but food sales rose by 0.7%.